Spring Forecast Statement

Lord Skidelsky Excerpts

Tuesday 17th March 2026 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, the eloquent speech this evening by the noble Lord, Lord St John, reminded me yet again of what this House is losing by chucking out its hereditary Peers.

I want to take advantage of the slightly longer time allowed to Back-Benchers to make a technical point about language, before going on to the question of policy. Whether intended or not, most of the OBR’s prose is unnecessarily unintelligible to the ordinary person. For example, paragraph 1.12 says:

“Labour market conditions continue to loosen”,


with entrants into the labour force facing “subdued hiring demand”. What this means is that unemployment continues to rise, with school leavers finding it harder to get jobs now. Why not say that? What is meant by “subdued hiring demand”? What is unsubdued hiring demand? Even in this august House, I doubt whether many Peers would be able to give an accurate answer to what unsubdued hiring demand means. There is a whole battery of theoretical assumptions behind that sort of phrase which need to be unpicked. My general point is that the OBR should spell out its theoretical positions so that the reader can grasp intuitively whether they make sense to them.

There is another issue here: the problem of forecasting, to which the noble Lord, Lord Redwood, and other noble Lords have referred. This arises from the obfuscation in OBR prose of the distinction between risk and uncertainty. In OBR-speak, those two terms are identical, but actually they are not. Risk gives you a set of probabilities; uncertainty means you do not have the foggiest what is going to happen. The whole business of forecasting outcomes over five years and then protecting oneself against inevitable failure by invoking stochastic shocks seems completely fraudulent. The biggest stochastic shock around at the moment is President Trump, yet you do not find any effect that he has on the smooth undulations of the five-year forecasts presented by the OBR.

Now for a breath of fresh air. The OBR ruminates that:

“If unemployment fell more sharply and returned to its equilibrium rate in 2027-28, two years earlier than our central forecast, borrowing could be lower by £16 billion a year on average from 2026-27”


onwards. In plain English, that means that if unemployment were lower, the budget deficit would be smaller. A striking thought: then why not make unemployment lower? There are many ways in which one might do it, but I will refer to just one. In 1929, the Liberal leader, Lloyd George, pledged to cut unemployment by half within a year by means of a £250 million investment programme. He never got the chance, but it may be of interest to translate it into today’s terms: as a share of GDP, £250 million in 1929 is equivalent to £80 billion to £90 billion today.

The noble Lord, Lord Livermore, has talked of an additional £120 billion programme that this Government have authorised over the length of this Parliament, but my understanding is that that is only £20 billion more than what the Conservatives had planned, and the stimulus of £1 billion to £2 billion in the next year is vanishingly small. I may be wrong, and I will happily be corrected if I am, but one needs to be clear about what stimulus the Government are actually giving the economy at this time.

It will be argued that the output gap today is much lower than it was in 1929, but is this true? Output gap estimates depend heavily on the unemployment rate—the higher the rate, the larger the gap. With headline unemployment only 1% above the equilibrium rate, the output gap seems very small, less than 1%, but is this a proper measure of spare capacity in the economy? Of course not. Our current headline unemployment rate of 5% excludes the 3.3% of involuntarily employed part-time workers—people who say they want to work longer but do not have the chance. If we put those two together, we have something like a spare capacity, accurately measured, of 8% or 9% underemployment. I would like the OBR—maybe the Treasury could instruct it—to put two charts side by side showing the unemployment rate and the underemployment rate, and then we could really see what the extent of our output gap actually was.

My last point is that unemployment is not the only measure of spare capacity. There are 1 million NEETs—young people between the ages of 16 and 24 not in education, employment or training. The Chancellor’s youth guarantee scheme guarantees only 55,000 places after 18 months’ unemployment. What is needed, as Paul Nowak, general secretary of the TUC, has often said, is a genuine youth employment/training guarantee on a far larger scale, organised locally as well as nationally, so that the jobs and training reflect the differing needs of different communities.

We are told that we cannot do any of this because of the fiscal rules. My answer to that is what Keynes said in 1933:

“Look after unemployment, and the budget will look after itself”.


That may be too bold for our rulers today, but I say to the Chancellor that if one wishes to gain anything then one needs to dare in order to gain something. The real risk is to do nothing and be overwhelmed by events.

Autumn Budget 2025

Lord Skidelsky Excerpts

Thursday 4th December 2025 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, first, I distance myself from the Opposition’s onslaught on Rachel Reeves. To my mind, she is a tragic figure rather than an incompetent one. She is trying to do her best for her people and the country but is in hock not just to the bond markets but to mistaken academic orthodoxy which, via the OBR, polices her choices. As Keynes wrote—this is the first time Keynes has been mentioned this afternoon—it is the ideas of economists

“which are dangerous for good or ill”.

The Treasury and OBR officials, newspaper columnists and market traders who make up today’s conventional wisdom are slaves of recently defunct economists.

The OBR gives a rare glimpse into the official mind when it writes:

“we assume that forward-looking households and firms save some of extra after-tax income from the near-term fiscal loosening, in anticipation of the future fiscal tightening”.

Economists know this as Ricardian equivalence: there is no such thing as a free lunch; do not spend more now, because you will have to pay for it later. The noble Baroness, Lady Neville-Rolfe, said much the same thing in her speech. Now, the Chancellor front-loads her rather meagre spending increases, back-loads her much larger tax increases and hopes that something good will turn up in the meantime.

A rare glimpse of sensible dissent came from the Guardian editorial of 27 November. It said:

“The state can create fiscal space whenever it chooses, and the economy will revive when it spends. Stagnation ends when the government stops starving the system”.


I have two questions to expand on this heretical insight. First, what has happened to the £900 billion quantitative easing money printed since 2009? I think the answer is that a large part of it has stayed in financial circulation, raising the price of bonds, equities and properties, but doing little to raise current output. Keynes referred to this attitude as liquidity preference. Others call it the financialisaton of the economy. The point is that money does not just fructify in the pockets of the people; it has to be spent on things which can be produced.

Secondly, there is the productivity puzzle. Where has all the productivity gone? A nation’s standard of living depends upon its productivity, and productivity largely depends on investment. When firms invest in new capital, skills and infrastructure, output per person rises. The UK is not just the lowest-investing countries in the G7; it is near the bottom of government investment as a share of GDP. It is the prolonged failure of private and public investment that has trapped us in low productivity and flat incomes.

So what is the answer? I do not decry the importance of business and supply-side reforms, but if businesses see no profit in investing, the state has to step in, not step out, and produce the additional demand that will give businesses the confidence to invest. Public investment has to be intelligently done, of course, and proper attention paid to distribution—this was a point made by the noble Lord, Lord Sikka. And this was Keynes’s message; it is not original to me. It served us well for 25 years. But now Keynes has been cancelled, leaving the Chancellor in her fiscal straitjacket and the people of this country poorer than they would otherwise have been.

Economic and Taxation Policies: Jobs, Growth and Prosperity

Lord Skidelsky Excerpts

Thursday 13th November 2025 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, I would also like to thank the noble Lord, Lord Elliott, for giving us a chance to discuss this important question, and it is always a pleasure to follow the noble Lord, Lord Eatwell.

Economic commentary has been dominated by the fiscal hole—said to be £30 billion—facing the Chancellor. To stick to her fiscal rules, Rachel Reeves will have to raise taxes, or cut spending, or do both, but she has promised not to raise taxes and has promised to increase public spending. She is, therefore, in a bind. However, this fiscal straitjacket depends on two assumptions: first, that there will be little or no economic growth in the next four years; and secondly, that the British economy is already at or near full employment. These are reasonable forecasts based on recent trends. However, since 2008, average economic growth has been about 1.5% a year, a full percentage point lower than before, and much of that has been down to the increase in population. Living standards for the majority have hardly risen and productivity has been flat, and the OBR expects this to continue. The noble Lord, Lord Elliott, emphasised the need for abundant employment, but I would suggest a different path from the one he has outlined.

With headline unemployment at 1.8 million, we are tolerably close to what we think of as full employment, though it has gone up a little to 5% recently. Is this a true measure, though, of spare capacity? Apart from the headline count, we have four million, or 10% of, working-age people claiming either disability or incapacity benefits, plus 1 million NEETs: that is, those between 16 and 24 who are not in education or in employment. In addition, 7.7 million are employed part-time. Then there are those who have left the labour market altogether. Some of these categories overlap, but if one were to add up the full-time unemployed, part-time workers who want to work more, those on disability benefits who could do some work, and the discouraged, one could get a better measure of spare capacity than the headline count alone. Estimates suggest the figure would be about 10% to 15% of the labour force. This, if true, would justify greater fiscal loosening than the OBR considers prudent. That is the first point.

How do we get the underemployed back into work? It is not simply a question of increasing demand—the old Keynesian formula. One has to rebuild supply. To give one example, the Government have unveiled a youth job guarantee scheme covering ages 18 to 21. Every young person who has been on universal credit for 18 months without earning or learning will be offered a guaranteed work placement, with the aim of helping them to transition into full employment. I welcome that initiative; it is very important. I like to think that it was influenced by a paper entitled Job Creation is the New Game in Town, which I co-authored with Gordon Brown five years ago. We wrote:

“Regional and local government job and training schemes”


for young people

“are essential to the task of reallocating work and skills into the labour market”.

We went quite a lot further, but I do not have the time to go into that. The basic idea was that there should be a public sector job guarantee, with a buffer stock of state-supported jobs and training schemes that expands and contracts with the business cycle. A job guarantee of this kind could take up a large part of the slack in the labour market. By raising the rate of economic growth, it would help reduce the deficit, and the guaranteed training and apprenticeship part of the scheme would directly address the productivity problem. So I urge the Government to fight the bond vigilantes and the tax cutters with a positive programme of economic renewal.

Spring Statement

Lord Skidelsky Excerpts

Thursday 27th March 2025 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, do the Government believe that we have a shortage or a surplus of labour? The question arises because the OBR has calculated an output gap of 0.5%, closing by 2027, which suggests that we actually have full employment, yet that flies in the face of common sense. We have 1.5 million people, or 4%, unemployed; 8.4 million, or 20%, working part-time; 2.3 million, or 5%, on disability benefit; 3.3 million, or 8%, on incapacity benefit; and 4.2 million, or 10%, drawing sickness benefit. I am not suggesting that they are all available to work—of course that is not true—but some of them are. Can the Minister ask the OBR to make clearer the basis of its calculations of capacity and output gaps? On those depends the whole success of the Government’s economic strategy.

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question and his expertise on this matter. He rightly highlights one of the most important challenges facing this country, which is inactivity. We have far too many people who are economically inactive. We are the only country in which inactivity has not reduced to pre-pandemic levels at this point, and that clearly is not a sustainable situation. A lot of our policies are driven towards ensuring that people can re-enter the labour market, exactly as he says. On speaking to the OBR, I am more than happy to make that point to my colleagues.

International Banking: Payments

Lord Skidelsky Excerpts

Thursday 28th November 2024 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, the noble Lord, Lord Collins, stated in this House on 15 October:

“Sanctions … are a crucial tool to weaken Russia’s ability to attack Ukraine”.—[Official Report, 15/10/24; col. GC 21.]


After nearly three years of sanctions, do the Government still consider them to be an effective tool, especially in the light of the evasions which have been mentioned earlier in the debate? I call upon the Government yet again to give an undertaking to publish their assessment of the effectiveness of the sanctions regime, so we can have an evidence-based debate on the subject rather than being fobbed off with mere assertion.

[Lord Livermore (Lab)]

The answer to the noble Lord’s first question, in terms of whether we consider them effective, is yes. In the case of Russia’s invasion of Ukraine, these measures have dramatically reduced Russia’s access to global financial markets and weakened its ability to finance its illegal invasion of Ukraine. Russia’s increasing reliance on North Korean and Iranian weapons highlights the impact these sanctions have had. We will pursue any necessary steps with our allies to maintain and reduce opportunities for the circumvention or evasion of international sanctions.

Autumn Budget 2024

Lord Skidelsky Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, there are many things to welcome in this Budget, particularly on the spending side. I am less keen on some of the tax proposals, which seem to be mean-minded and counterproductive, such as the tax on knowledge.

The spending commitments are important because they reverse the disastrous policy of austerity, which has brought our public services and infrastructure close to collapse. Even the IMF, originally a champion of austerity, admitted that it had underestimated what it called austerity’s negative multipliers, which is simply code for it having been disastrously wrong in estimating the negative effects of austerity.

The cost of austerity has been severe. Median per capita income is lower than it was in 2010. The public debt to GDP ratio has gone up from 70% to 100%. By far the most important reason for this has been weak economic growth. This means that the Chancellor gets less help from the denominator in the debt to GDP ratio. Austerity has been a crucial cause of low economic growth. It is a vicious circle: cuts in public spending reduce the growth rate, which raises the debt to GDP ratio, which raises the interest rate on government debt, which requires austerity to counter it, and so on. We have to get out of this.

The Chancellor has tried heroically to escape this trap by tweaking the fiscal rules; for example, by reclassifying public sector debt as public sector net financial liabilities. I think that the Government hope to squeeze an extra £50 billion spending headroom from these and other measures. Perhaps one should welcome any sleight of hand which loosens the iron grip of the Treasury.

However, honesty compels me to say that current capital account distinctions in the public sector are full of holes. Are student loans to be counted as assets, even though most of them will never be repaid? There are other questions such as that. The Chancellor will also need to persuade sceptical businessmen that the publicly owned national wealth fund will produce, over the years, net assets rather than net debts. I understand all those things, but economic orthodoxy forces the Chancellor to tell an incomplete story. In her narrative, there is no mention of demand, only supply.

The sagacious Paul Johnson of the IFS warns that if you really want to spend more, you will have to tax more; that is right, but as any economist will tell you, how much more depends on how much spare capacity there is in the economy. Bringing idle plant and labour into use gives you a free lunch. How much spare capacity is there in the British economy? If we add up the inactivity rate and part-time working, it is at least double the headline unemployment rate of 4% or so that we read about, so there is scope to boost demand as well as to improve supply.

For those who want to increase public spending while maintaining fiscal probity, I recommend an ancient piece of fiscal machinery known as the balanced budget multiplier. The idea behind it is that an increase in government spending balanced by an equal increase in taxes yields a positive multiplier—I would be happy to explain why to any noble Lords who find this puzzling. But the last thing the Conservative Party wants to do is to balance the budget by raising taxes; its fiscal zeal is concentrated on austerity. The Labour Party is more open-minded and generous; that is why it is a good thing that Rachel Reeves, and not Jeremy Hunt, is in charge of the Treasury.